Featured Article

Are “Sell Signals” Useless In “Mania” Markets?

 

A recent Bloomberg article made the case that since 2009 “sell signals” are useless during “mania” markets. To wit:

“If you bailed because of Bollinger Bands, ran away from relative strength or took direction from the directional market indicator in 2021, you paid for it.

It’s testament to the straight-up trajectory of stocks that virtually all signals that told investors to do anything but buy have done them a disservice this year. In fact, when applied to the S&P 500, 15 of 22 chart-based indicators tracked by Bloomberg have actually lost money, back-testing data show. And all are doing worse than a simple buy-and-hold strategy, which is up 11%.” – Bloomberg

Note: “Bloomberg’s back-testing model purchases the S&P 500 when an indicator signals a ‘buy’ and holds it until the system generates a ‘sell.’ The index gets sold, and a short position established, until a buy is triggered.”

See, you should “buy and hold” invest, right?

Investing Based On Hindsight

Bloomberg goes on the clarify essential points.

“Of course, few investors employ technical studies in isolation, and even when they do, they rarely rely on a single charting technique to inform decisions. But if anything, the exercise is a reminder of the futility of calling a market top in a year when the journey has basically been a one-way trip.” – Bloomberg

In the short term, which can even include a 12-year bull market cycle, there are periods where “buy and hold” investing outperforms any other form of asset management. The problem is that you only know for sure that “buy and hold” was the proper strategy in hindsight.

Most only have a limited amount of time to invest for retirement for investors, so “getting it right” largely depends on two factors.

  1. When you start your investing process; and
  2. Avoiding major drawdowns

With the vast amount of individuals already vastly under-saved, the current “bear market” cycle will reveal the full extent of the “retirement crisis” silently lurking in the shadows. The Fed, Government bailouts, and low interest rates can’t fix this problem.

Such isn’t just about the “baby boomers,” either. Millennials are haunted by the same problems as their prospects of “economic prosperity” get set back years.

But here is the real problem for “baby boomers.”

Crashes Matter

Financial advisors regularly tell clients that the market grew 6% annually since 1900. Therefore, that is what returns will be in the future. The chart below shows $100,000 invested at 6% annually from 2000 or 2007.

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It’s not often we get to make an offer like this, but Mark Leibovit and the VR Trader team have been part of MoneyTalks for almost 20 years. So he wasn’t shocked when we suggested he make 3 of his most popular newsletter services, which normally cost almost $700, available to our audience for a “can’t afford not to” one month trial rate of $17.50.
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Mark is widely recognized as one of the most consistently successful stock traders in America. And he provides detailed buying and selling information for his subscribers.

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Stanley Druckenmiller is widely considered one of the greatest investors ever.

Born in Pittsburgh in 1953, he studied English at Bowdoin College before starting work towards an Economics PhD at the University of Michigan. In 1977, he dropped out of the PhD program and joined the Pittsburgh National Bank as a retail investment analyst.

After learning the ropes, Druckenmiller founded his own investment firm in 1981 — Duquesne Capital Management. He established such a strong track record that hedge fund legend George Soros recruited him to work at the Quantum Fund, which he did from 1988 to 2000.

As the Quantum Fund’s lead portfolio manager, Druckenmiller helped Soros pull off one of the single greatest trades: In 1992, the pair “Broke the Bank of England” with a bet against the British Pound that netted a $1B pay day.

Following his long partnership with Soros, Druckenmiller built Duquesne Capital to a peak of $12B of assets under management. In 2010, he returned all of his investors’ money and converted Duquesne into a family office.

Why?

Druckenmiller no longer wanted to deal with the “stress” of maintaining such an exceptional trading record.

And the record is almost peerless: over more than 4 decades of investing, Druckenmiller has never recorded a down year (his fund even notched a return of +11% in 2008).  During one stretch, he compounded assets at 30%+ a year for 30 straight years. Today, he has a net worth of $5B+.

To find out more, The Hustle recently spoke with the trading legend. The conversation was set up by Toggle AI, an investing AI startup that Druckenmiller counts among his investments.

Druckenmiller tells us:

  • What makes a great investor
  • How he makes an investment decision
  • Whether we are in another tech bubble
  • What career advice Druckenmiller has for 20-year olds
  • What he thinks of crypto (Bitcoin, Ethereum and Dogecoin)
  • Which Big Tech firm will be the first to reach a $5T valuation

And a whole lot more. Enjoy. 

 

Bonds Have Never Been So Useless As A Hedge To Stocks Since 1999

 

Bonds aren’t working as a safe haven like they used to.

On a day when risk aversion swept across everything from stocks and commodities to crypto currencies, Treasuries barely budged. In fact, the S&P 500 and 10-year Treasury futures haven’t been so positively correlated since 1999, with the 60-day metric reaching 0.5 on Wednesday. In contrast, the average correlation over the past two decades was negative 0.3, meaning a decline in stocks was often accompanied by a rally in bonds.

The relationship flip signals that the role of Treasuries as a shock-absorber has been eroded as the fear of inflation becomes a common denominator for both stock and bond investors. If it persists, it would mark a sea change as strategies such as risk-parity and 60/40 are likely to become more volatile.

“Long bonds as your hedge worked in a Goldilocks era” of stable growth and inflation, said Charlie McElligott, a cross-asset strategist at Nomura Securities. “But now, due to the pandemic response, that old dynamic simply no longer applies. Inflation is a volatility catalyst.”

The stock-down-bond-up scenario that investors have grown accustomed to has only been a staple since 2000. Earlier, a positive correlation had been more common as inflation was more volatile.

While the core U.S. consumer price index increased in April at the fastest pace since 1982, the Federal Reserve has insisted the surge is “transitory” and the central bank will be patient in removing monetary stimulus. If the Fed is right, the bond-stock correlation could normalize, said McElligott.

“Only in the case of an extreme inflation overshoot would the Fed’s hands be tied,” forcing it to raise rates more quickly and crash both bonds and stocks, he said.

 

 

The Dow Jones and S+P futures closed at All-Time Highs Friday, May 7, traded higher during the Sunday overnight session but turned lower Monday morning and tumbled ~1,500 points to Wednesday’s lows. The DJIA rallied back ~900 points Thursday and Friday.

Bond futures surged on the weak employment report early Friday, May 7, but had 2nd thoughts and sold off five points into Wednesday’s lows. The tumble in stocks and bonds may have been motivated by perceptions that inflation was running hotter than expected.

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Trading Desk Notes For May 8, 2021

 

Stocks, commodities and gold surge higher, the US Dollar falls

The S+P 500, the Dow Jones Industrials and Transports, and the TSE Index closed the week at All-Time Highs. The Transports (up ~145% since March 2020 lows) have closed higher for 14 consecutive weeks – for the first time in their 137 year history.

See Charts